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Affluent Investor | June 26, 2017

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Trade Doesn’t Prevent War

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The China relationship of our dreams simply doesn’t exist.

Politicians who seek to continue allowing the nearly bankrupt federal government to continue spending on social programs that it can ill afford by borrowing from Beijing, and corporations that seek to make large profits by selling their wares or services to it, propagate the inaccurate concept that China can be readily brought into the larger international community through the incentive of trade.

The idea that economic ties serve as a preventive measure against armed conflict only works if the nation-states involved operate as rational, functioning democracies whose governing intentions are the promotion of its citizenry’s best interest. Totalitarian governments, such as China, operate under a different set of principles.

Richard Eberling, writing for The Mises organization noted:

All of the treaties and agreements and all of the hopes that international trade would establish a web of mutual interdependency in the areas of commerce, culture, and communication, which would make war impossible or at least more ‘civilized,’ died on the battlefields of Europe in 1914…And the Second World War threw to the winds all restraints on the conduct of nations, as unrestricted methods of warfare were joined by mass murder and the barbaric brutalizing of tens of millions of innocent and unarmed men, women, and children.

Paul Krugman, writing in the New York Times explains:

Some analysts tell us not to worry: global economic integration itself protects us against war, they argue, because successful trading economies won’t risk their prosperity by engaging in military adventurism…Shortly before World War I…British author…Norman Angell, published a famous book titled “The Great Illusion,” in which he argued that war had become obsolete, that in the modern industrial era even military victors lose far more than they gain. He was right – but wars kept happening anyway. So are the foundations of the second global economy any more solid than those of the first? In some ways, yes. For example, war among the nations of Western Europe really does seem inconceivable now, not so much because of economic ties as because of shared democratic values. Much of the world, however, including nations that play a key role in the global economy, doesn’t share those values. Most of us have proceeded on the belief that, at least as far as economics goes, this doesn’t matter – that we can count on world trade continuing to flow freely simply because it’s so profitable. But that’s not a safe assumption…the belief that economic rationality always prevents war is an equally great illusion. And today’s high degree of global economic interdependence, which can be sustained only if all major governments act sensibly, is more fragile than we imagine.

James R. Holmes, in a Diplomat article echoes that concept. He notes that the European nations that came to blows in the First World War were even more interconnected than those of today’s global trading order.

Edward Chancellor in a Reuters editorial, argued:

Trade between countries…can lead to intense competition for raw materials, whilst also producing in some nations an acute sense of geostrategic vulnerability. Rather than bringing eternal peace, trade between nations may lead to war…The extensive trade among the [pre-World War one] Great Powers did not prevent a naval arms race…In recent years, the Middle Kingdom has been building up its navy and lately become involved in a number of maritime territorial disputes with its neighbours. Japan, under nationalist Prime Minister Shinzo Abe, is seeking to strengthen its military capacity. An arms race in Asia threatens. Beijing has also developed quasi-autarkic ambitions. China’s investment-driven economy cannot survive without imported raw materials. Although China is a net importer of most raw materials, Beijing has used its dominant position as a supplier of rare earths for political ends. In 2009, as a dispute with Japan over the sovereignty of the Senkaku/Diaoyu islands flared up, China effectively banned the export of rare earths, a vital component for Japan’s electronics manufacturers.

If war is to be avoided between trading partners, a common set of principles need to be agreed upon to prevent disputes from escalating into armed clashes. If a trade dispute arises between, for example, the United States and France, there is little danger that Washington and Paris will go to war to resolve the issue. Both adhere to common diplomatic and legal concepts, even if their interpretations of the law differ, and each side acknowledges that even unresolved conflicts should not be settled by shooting.

Not so China. This can clearly be observed in Beijing’s expansionist maritime practices. China has laid claim to approximately 90% of the resource-rich South China Sea. It enforces its claim-disputed by numerous nations-through the use of its increasingly powerful Navy. Its armed forces invaded the internationally recognized Exclusive Economic Zone belonging to the Philippines. Despite a clear ruling against that action by the International Tribunal at The Hague, Beijing refused to back off. It continues its expansionist actions throughout the South China Sea, turning the vital trade region into a potential tinderbox. It does so because it does not subscribe to internationally recognized diplomatic and legal practices, and does not place trade relations ahead of its national goals.

Of course, the U.S. should seek to avoid war with China. But it needs to do so through realistic means, not through the illusion that economic ties will serve that end.

 

Originally published on the New York Analysis of Policy and Government.

Frank Vernuccio serves as editor-in-chief of the New York Analysis of Policy & Government (website usagovpolicy.com). He is the co-host of the syndicated radio program, Vernuccio/Novak Report, and is also a contributor to Fox News. His columns appear in many newspapers. After graduating Hofstra Law School, he was a legislative editor for a major publishing company, then served in both Republican and Democrat Administrations. Following the 9/11 attack, he was appointed to run the hard-hit Manhattan branch of the New York State Workers Compensation Board.

 

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